Latvia Pharmaceuticals and Healthcare Report Q4 2009

Prospects for multinationals operating in the Latvian pharmaceutical market remain bleak. The economic crisis - highlighted by abysmal GDP data and rocketing unemployment - is so deep that the effects are filtering through to the healthcare system. Pharmaceuticals sales in Latvia showed negative year-on-year (y-o-y) growth during the second quarter of 2008, a sign of probable further erosion by year-end.

Currency devaluations should result in extremely poor results for foreign investors. For the Q409 update, BMI has introduced its new 10-year forecast model to the Latvia Pharamceuticals & Healthcare Report. The model projects some reasons for optimism for foreign drugmakers. A restrengthening growth dynamic should be seen from 2011 onwards, albeit at much lower rates to those seen over the past five years. From 2008-2018 BMI forecasts a compound annual growth rate (CAGR) of 3.78% for pharmaceutical sales.

In BMI's Pharmaceuticals & Healthcare Business Environment Ratings, Latvia has dropped to a lowly 17th position out of the 20 markets surveyed in the Emerging Europe region. In relation to the previous quarter, Latvia has moved down one place and the country's overall pharmaceutical rating well is below average. Market size and growth dynamics are the key drawbacks for multinational investment.

Despite declining GDP growth and an explosion in unemployment, the government has made efforts to shift spending on to patients. In January 2009, the government reduced reimbursement rates. Those medicines categorised in the 90% band have been lowered to 75%, while the 75% category is now 50% reimbursed. Only treatments for life-threatening conditions are fully reimbursed by the government.

The Latvian Ministry of Health has drafted legislation that will remove non-prescription medicines from the shelves from September 1 2009, in order to avoid unnecessary health risks and dispel the notion that over-the-counter (OTC) drugs are consumer products. Latvia's OTC market experienced strong growth from 2004-2008, but the negative economic outlook looks set to severely decrease sales during 2009 and possibly 2010. Data released by major pharmacy chain Euroaptieka shows that the market segment for OTC products declined by 22.68% during H109.

Half-year financial figures from Latvia's two leading pharmaceutical companies, Grindeks and Olainfarm, have brought mixed results for the companies. The country's number one drugmaker Grindeks reported sales decreases of 6.5% y-o-y to LVL29.8mn (US$60.6mn) in H109, while profits declined 32% to LVL3.4mn (US$6.9mn). Meanwhile Olainfarm's H109 results saw sales rise 6% y-o-y, with its rapid expansion in Commonwealth of Independent States (CIS) markets key to growth.